Trump puts pressure on the defense sector amid a renewed arms competition

Trump Proposes Limits on Defense Executive Pay and Pushes for Faster Military Production

Donald Trump has announced plans to restrict the compensation of top executives at military contracting firms, stating that their pay should not exceed $5 million until new manufacturing facilities are established.

In an effort to accelerate the rearmament of the United States, Trump declared that defense industry leaders would face a cap on their earnings until they invest in expanding production. He also revealed, via social media, that defense companies would be prohibited from issuing dividends or repurchasing shares until they commit to building new plants. Additionally, Trump outlined his intention to increase the U.S. defense budget by 50%, raising it from $1 trillion to $1.5 trillion.

Trump emphasized, “The pace of military equipment production is too slow!”

The announcement triggered a sharp decline in the stock prices of major U.S. defense contractors, including Lockheed Martin, Northrop Grumman, General Dynamics, RTX, and Boeing, as investors reacted to concerns over tighter industry regulations.

It remains uncertain how these measures will impact BAE Systems, the largest defense company in the UK and a significant supplier to the U.S. government. In 2024, BAE Systems distributed a dividend of £622 million, and its CEO, Charles Woodburn, received £11.7 million in compensation.

These proposed changes have also raised concerns about the potential effects on dividend payments that are important to both Wall Street and British pension funds.

Trump argued that funding for military equipment should come from reducing executive compensation, dividends, and stock buybacks, rather than relying on loans or government funding. He criticized the current level of executive pay in the sector as “excessive and indefensible,” and warned that defense firms are not delivering equipment quickly enough.

Plans to Boost Defense Spending

Trump explained his rationale for the proposed budget increase, stating, “For the sake of our nation, especially during these challenging and dangerous times, our military budget for 2027 should be set at $1.5 trillion, not $1 trillion.”

While this budget proposal will require Congressional approval, the announcement is expected to influence market activity in the coming days.

This policy shift follows recent actions by Trump, including the removal of Venezuelan leader Nicolás Maduro by U.S. military forces and threats to take control of Greenland, a territory belonging to Denmark.

Danish Prime Minister Mette Frederiksen, whose country is a NATO member, warned that any attack on Greenland would jeopardize the alliance’s future.

In another demonstration of military strength, Trump recently ordered the seizure of a Russian oil tanker in the Atlantic, citing alleged violations of sanctions.

Although the exact method for enforcing the proposed pay cap is unclear, the move could result in pay reductions of up to 80% for senior executives in the defense industry.

Top-Paid Defense Executives

Among the highest earners in the sector are Kathy Warden of Northrop Grumman, who received $24.4 million last year, and Phebe Novakovic of General Dynamics, who earned $23.8 million. Boeing’s Kelly Ortberg was paid $22 million, while Christopher Calio of RTX received $18 million.

Calls for Increased Production

Investors are speculating that these restrictions may apply only to American-owned companies, rather than all firms operating in the U.S. market.

Trump has called on defense contractors to accelerate the construction of new factories to ensure the timely production of advanced military equipment for American forces. He also criticized the slow pace of maintenance and repairs for existing equipment.

He stated, “While the United States produces the world’s best military equipment, defense contractors are prioritizing large dividends and stock buybacks over investing in new plants and machinery. This practice will no longer be tolerated!”

Following the announcement, shares of Lockheed Martin fell by 4.78%, Northrop Grumman by 5.48%, General Dynamics by 4.18%, RTX by 2.45%, and Boeing by 0.74%.

Trump also warned that Raytheon, a major U.S. defense contractor, would be barred from working with the Department of War unless it increases its investments in production facilities and equipment.

Additional Policy Proposals

On the same day, Trump revealed plans to prevent large institutional investors from purchasing homes in the U.S., aiming to make housing more accessible for first-time buyers. He intends to discuss further initiatives on housing and affordability during his upcoming speech at the World Economic Forum in Davos.

He noted that investor activity in the housing market makes it increasingly difficult for new buyers to enter the market due to heightened competition.